9/24/2009 @ 4:57PM

The Looming Battle Over Targeted Ads

No one disputes that ads are a critical part of the Web’s information ecosystem. News Web sites like this one depend on them for nearly all their revenue, as do sites like Facebook and YouTube that have changed the way we communicate online.

What generates a lot of debate are the increasingly sophisticated methods for selling ads targeted to narrow segments of Web users. Today, Web sites ranging from tiny blogs to newspaper publishers to digital giants such as
Google
engage in a practice called behavioral targeting, a method of compiling data about which sites people visit, what topics they search for and an array of other Web activities to better surmise what types of ads might prompt them to make purchases.

Earlier this month, representatives from 10 consumer advocacy groups, including the Electronic Frontier Foundation and Consumer Federation of America, urged Congress to enact a set of laws governing what types of data Web sites and data collection firms can compile. To date, the Federal Trade Commission has issued a set of recommended principles for behavioral targeting and left companies and trade groups to regulate themselves. Privacy advocates call the current system inadequate.

Rep. Rick Boucher, D-Va., the chairman of the House Energy and Commerce Subcommittee on Communications, Technology and the Internet, says he is working on a bill that would outline broad restrictions on certain types of data collection and ad targeting. Speaking in front of Congress this month, Boucher said he hopes to draft a bill of rights, of sorts, regarding online ads.

Meanwhile, the Federal Trade Commission is studying existing behavior marketing practices and whether it needs to make its principles legally binding.

Driving the interest in the public impact of behavioral targeting is the recent introduction of targeting products by some of the Web’s biggest players. In March, Google launched an “interest-based advertising” service, which compiles data on what types of Web sites users visit and uses that information to deliver targeted ads for publishers that use Google’s AdSense product.
Microsoft
expanded its behavioral targeting services this month to cover Web sites, mobile phones and its Xbox game console.

Unsurprisingly, ad tech firms and publishers that rely on ad sales for the bulk of their revenue oppose new laws regulating their business and prefer to maintain the status quo of self regulation. In the coming months, Web users and marketers should expect the debate over Web ad privacy to intensify.

The Stakes

For publishers of news and entertainment ranging from newspapers to TV networks to nascent Web-only operations, deploying increasingly powerful targeting technologies is critical to their future business plans. Web sites typically rely on third-party advertising brokers, called ad networks or ad exchanges, to sell more than 90% of ad inventory. The prices for ads sold by third parties have plummeted in recent years due to the social networks, blogs and other new players flooding the market with ad space. Behavioral targeting systems could help big publishers make their lowest-priced ads more useful for advertisers and could lift revenues.

Advertising technology companies, including
Yahoo!
, Google, AOL and a swarm of smaller players, have invested billions of dollars in technologies to automatically analyze Web audiences and sell relevant ads.

For consumers, new restrictions on ad targeting could help stave off data leaks and unfair marketing practices. Yet if the new laws are too restrictive, they could damage the ability of innovative media companies like Facebook and YouTube to make money selling targeted ads, thereby reducing the availability of useful, free Web services.

How Targeting Is Currently Regulated

Earlier this year, the FTC updated its recommended principles for behavioral targeting. Its policies boil down to four main themes:

–Transparency and Consumer Control: Web sites have to tell customers what type of data they are collecting and how it will be used. They also have to give users the choice of opting out of data collection.

–Data Security: Companies can only retain user data as long as it fulfills a legitimate business purpose and must prevent information from falling into unauthorized hands.

–Consent for Policy Changes: If a company decides to change the way it exploits previously collected user data, it must notify users in advance.

–Consent for “Sensitive Data”: Companies must obtain prior consent from users before collecting sensitive personal information. The FTC doesn’t define sensitive information, but suggests that it includes data about children, health and personal finances.

What Privacy Advocates Want

Much of the wrangling over privacy and online ads concerns whether the media companies should be regulated by trade groups or by actual laws and regulations.

For personal data volunteered by users and behavioral data gathered automatically, the consumer groups want laws that would force sites and data collection firms to specify what the data will be used for at the time of collection and provide users an easy mechanism to block data gathering. New uses of data would require Web firms to secure users’ consent for each new marketing application.

The privacy groups also want laws requiring increased disclosure. Companies engaged in behavioral tracking should have to register in a database at the FTC and consumers should be able to request a copy of all information a targeter has on them in a form that is intelligible to laymen.

What Publishers Want

The Online Publishers Association, the trade group representing big ad-supported Web publishers, opposes establishing actual laws regulating behavioral targeting or making the FTC’s current self-regulatory principles a de-facto legal system that would assign liability to Web sites that violate them.

Regarding how consumers can opt out of data collection and behavioral targeting, the publishers think consumers should have to use controls on their Web browser, or additional software, to block the Web sites’ collection of user information. Forcing Web sites themselves to allow users to opt out of ad targeting would make it difficult for the publishers to collect data used not for advertising but to better customize sites and content to individual users.

The publishers trade group also opposes calls to ban changes to data use policies without user consent. Web sites should be able to change their policies regarding privacy and user data without consent as long as users were previously advised that changes could take place and they are given ample opportunity to opt out of the new data applications, the group argues.

The publishers also oppose the privacy advocates’ calls to outlaw the collection of sensitive data regarding personal medical conditions, financial situations and politics, among other characteristics, without consent. As long as the information is not attributed to a specific person’s name, the publishers group thinks it should not have to obtain personal consent and that such a restriction would cut off users’ access to valuable ad messages.

What Advertising Tech Companies Want

The Network Advertising Initiative, a trade group representing data-gathering outfits and ad brokers, also wants to stick to self regulation and avoid formal laws on targeting. Like the publishers, the ad tech group doesn’t want to ban collection on non-personally attributed information pertaining to medical issues, personal politics or finances.

The group already requires its member ad brokers and data collectors to force Web sites using their services to disclose what type of data is being collected and offer a link to a mechanism to opt out. The group wants to take a bigger role in facilitating the blocking of behavioral targeting and makes available on its Web sites tools for blocking data collection by many members, including Google, Akamai and Yahoo!.

What Happens Next

Until February 2010, FTC officials will examine behavioral targeting practices and consumer concerns, says FTC spokeswoman Betsy Lordan. If the FTC believes then that formal rules, as opposed to just recommended principles, are necessary–and Boucher or another legislator has not already introduced legislation–the FTC will either issue legally-binding guidelines or will help Congress craft new behavioral targeting laws.

The FTC has been studying privacy issues related to online ads for more than a decade and is clearly reluctant to install any formal restrictions that could impede the growth of Web ads. So privacy advocates will likely have to mobilize consumers and appeal to lawmakers like Boucher.

There is some precedent for Web users organizing to protest unpopular privacy practices. In 2007, 50,000 enraged Facebook users signed an online petition after the company began automatically sending ads notifying members of their friends’ purchases on other sites.

In that case, Facebook listened to its users and killed the program. Convincing Congress to change its perspective on online privacy will be a bigger challenge.